How Profitwell increased their customer lifetime value from $6k to $150K

Patrick Campbell

|

CEO & Founder

of

Profitwell

Patrick Campbell

Episode Summary

In today's episode we have Patrick Campbell the Founder of Profitwell. ProfitWell provides free subscription metrics software to help you identify opportunities and then tools to help you reduce churn, optimize pricing, and grow your subscription business end-to-end.

We chatted about how Profitwell added a services layer on top of their software business that decreased churn and increased their customer lifetime value from $6,000 - $150,000.

We also discussed what companies get wrong when tackling churn, the steps required to nail your pricing strategy, the importance of value-based pricing and what your value metric should look like.

Patrick also shared what he would do to tackle churn when given the task starting at a new company.

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Mentioned Resources

Highlights

Why Profitwell started as a software business but then realised they needed to layer a services layer on top that took their LTV from $6,000 to $150,000

00:04:30

What companies typically get wrong in tackling churn

00:06:00

The steps to determine and defining a pricing strategy

00:10:30

What is a value metric and why it is crucial in pricing your product

00:14:40

Determining your value metric

00:17:20

The trend of software towards freemium and it’s impact on retention

00:24:00

Patrick’s most surprising insights from Profitwell’s churn study

00:30:00

Voluntary vs involuntary churn

00:34:30

What Patrick would do to tackle churn starting at a new company

00:37:10

Transcription

Andrew MichaelHey, Patrick, welcome to the show. How you doing today? Doing well man I am right now in Brazil normally based in Boston, so I'm enjoying some some basically summer weather down here which is great. Very nice. What you doing in Brazil at the moment as here for a SAS subscription conference? Yeah, the market down here is like really fascinating. I didn't know a lot about it until late last year, but it's kind of you know, becoming

Patrick Campbellthe Brazil market is large enough to support companies, a lot of them are, you know, like flourishing in Brazil. And they're kind of almost siloed away from the rest of the world. And so it's it's one of those things where it's kind of a cool thing, where they're all kind of now thinking globally once they reach a certain stage. And so it's just kind of amazing to to be in a market where you're like, oh, wow, like you guys are a lot further advanced than a lot of people think it's just because you're not selling outside. So cool to learn.

Andrew MichaelYeah, absolutely. And I think yourself, you probably know, have sitting on one of the most amount of scripts subscription data out there for the audience as well. And Patrick is the CEO and founder of profit, well, they offer a free metrics tool, basically giving you all the reports and financial reporting you need for your subscription business. Patrick, maybe you just want to talk us through a little bit about profit. Well, and what did you do and then how you took the transition from I know, initially, you started as a consulting business with price intelligently and transition them into what is today profit? Well, yeah, totally.

Patrick CampbellSo profit. Well, as you mentioned, it's a free subscription financial metrics product. So you plug it into your billing system, stripe branches, or whatever you're using and get access to your churn, your cohorts, your MRR, all the main metrics you need. And then, you know, kind of the way that we make money as we sell a couple of different products. One is a pricing product. It's a it's called a tech enabled service. So it's it's software. But there's also a service element to it, mainly because pricing is something that people tend to need a lot of hand holding for it. And we originally, as you kind of alluded to, we started off as price intelligently. And what a lot of people don't know is it was a pure software product out of the gate. You know, but we added the people into it, because all of a sudden, we found that, like I said, you know, people needed needed some some help with the confidence of making a pricing change. And so that was something that kind of helped fuel our transition there. But we also have some other products, one is called retain, which you know, as the name suggests, is very, very rooted to reducing churn and helping with retention. And the way that we do that is we attack credit card delinquencies. So these are credit card failure. And then in addition to that, we're now starting to go after a voluntary churn in a mechanical way, which is working out really, really well so far. And then we have like an accounting product, as well. But the kind of feel Dr. summary is we're squarely focused on the subscription and SAS market. And we want to understand, you know, subscription and growth better than anyone else, and then kind of deploy that understanding and the products that help people.

Andrew MichaelVery interesting. I wanted to touch that get started a little bit about talking about pricing, obviously, you have a wealth of knowledge in the space. And pricing is one of those that has one of those most important growth levers that you can pull, and has the ability to impact almost every metric when it comes to that time value of your customer acquisition costs. Looking at ARPU, and even shown itself, you mentioned you started off with software and people just couldn't figure it out. So you had to bring in hands on. So what led you to that conclusion? And why did you do it? Yeah,

Patrick Campbellso I think those are two really good question. So the conclusion that we found was that, I mean, it's kind of apropos to this, this show and this topic was, we are turning was really high. So we would have we had this tool where you could go collect data. And then our algorithms were baked into that data. That allowed you to kind of figure out things like price elasticity and relative preference, I know you lead pricing up that jar. So you kind of know what that output looks like at this point. But we had that tool, and then all of a sudden, like, what we found was people would use the tool, they would get value, but they wouldn't implement the findings. And when we started digging in on that, is we discovered that basically, it wasn't that people had trouble interpreting the findings, there was just trouble and people essentially understanding or having the confidence to actually implement those findings, because pricing is one of those things that

We all know it's kind of important. We all know that we don't know enough as we should own it. But it's one of those things where we're not ready to like, you know, risk our neck, as they say, on like, you know, making a decision on it and and potentially going wrong. And so with that understanding, as well as with the fact that, you know, collecting data, it's a little bit cumbersome, it's not automatic, like you have to go out, you have to collect the data, you have to massage the data, you have to do everything. We basically were like, cool, like, Well, you know, where we asked where we were asked, basically, Hey, would you do this for us? And would you help us? And, you know,

we initially were like, No, I don't know, like, you know, everyone says don't do services, that type of stuff. But then the numbers that they were coming back with were so high that we were like, Oh, interesting. So we can act like a software company, in the sense of like, the software is there, our operations are really good, all that kind of stuff. But we can kind of demand almost consulting type prices. And so all of a sudden, our LTV went from like $600 to like $150,000. And it was one of those things where I mean, it didn't happen, like instantly. But it was one of those things we learned. were like, Okay, and so over time, what we've done is we've done more and more software, and it's all on the back end. So to our customers, it feels as if this is a blessing and a curse, it feels a little bit more consulting heavy. But in actuality, our margins are, you know, 78% like software, it is something where we're able to scale and we're able to have demand like a very, very high LTV. And over time, we're going to continue to build based on all these learnings, we're going to build products that look like retain or look like profit, while metrics that are kind of like touch those products. But right now, it's allowing us to feel the business because we're we're a bootstrapped business. So we haven't raised any funding. And so that all of that, you know, profit, quote, unquote, is just basically goes right back into the business. And I think this is a, this is a good lesson to answer your other question, which is, and I think I have a better answer for your question. But this one is related to this is that I think a lot of people, they get a little bit dogmatic and religious about the wrong things when it comes to true. I think that they, you know, for instance, so we noticed some term problems with now our pricing product, which is an annual products, you pay on an annual basis, you pay monthly, but you you're on an annual term, it's a subscription. The issue is, is that with some companies, they they just don't get it. And we're not doing as good of a job as we could be in helping them get it and helping them implement. And some of it's out of our control, because it's internally at the company, like office politics, these types of things, which is really hard for us to manage, right. And so with that, we were like, Okay, interesting, like, what if we went and visited every single one of our, you know, one of our companies that we work with, right? So we started this this, you know, this experiment just this year, where we're based, like getting on the ground going to their office, making sure all of the important people are there, recognizing people who are we call them the Darth Vader's who are kind of the disagreeable folks that we can specifically, you know, hand hold them and understand when their objections are going to come. But basically, we're doing these things that don't are that appear not the scale, and what making those costs basically directly into our pricing? It's kind of like, you know, ecommerce, free shipping, like it's never actually free shipping and just make it in the price. And that's basically what we're doing is like, Oh, yeah, we're going to come visit you, we're going to hand hold you and and so far, it's been really, really good for renewals and things like that. And so that's the mistake I think a lot of people make is they're like, well, we can't do this, we can't do that. Well, why not? Like if it's going to reduce or increase the numbers that you're trying to reduce or increase? Then you should learn about it. Now there's a there's a chance that we're like, oh, this is way too expensive. It puts too much load on our business. But actuality, I think it's going to actually really, really help.

Andrew MichaelAnd I think like you said, maybe in some aspects is a little bit counterintuitive, moving towards the server space when you're building software, but I think it and then the add the flip side, though, it's almost like you have this continuous customer development and customers really feeding what you'd be building and the different types of services like you say, the retain and revenue recognition as a result of the knowledge and experience you've had working directly with your customers are a little bit yeah,

Patrick Campbellhundred percent getting getting paid to do your customer development is probably like the number one thing you can do, especially in an early stage.

Andrew MichaelYeah. So let's talk a little bit about price intelligently, as you as you mentioned, that led up the pricing research with epi torture, and there's a certain methodology that you run through and the way that price intelligently works as you work in sprints. And each sprint is to try and understand certain aspects of pricing, whether it be through the ideal customer persona is that you're going after what the pricing and packaging should look like. And then what the pricing itself should be as well. Well, maybe you just want to talk us a little bit through this methodology, Patrick, and how you came about it?

Patrick CampbellYeah, it's a good question. I think for us, it really evolved from handling the pricing problem in general. And so in any business, you have this, you know, this fairly ambiguous large problem that you're trying to solve, right? Like reducing churn, optimizing pricing, getting growth, right, like, that's kind of where you start. And then when you start to break down that problem, you basically need to to attack, right, so for growth, there's, you know, so many different vectors there for pricing, there's a little bit less factors, but they typically have higher impact. And then same thing for retention, right. And so for us, we kind of started off with, hey, we're going to solve your pricing, which is like the most ambiguous, you know, kind of thing to sell, right? And it have caused, like these very, very big research kind of snack foods that I would say, where it was like, you know, we just weren't focused enough, right? And so then it started to come become like, Okay, well, if we were going to like solve pricing at a company, like what are all of the steps, right? So the first thing you need is you have to understand your buyer personas. And not just like, you know, the generic buyer personas of HubSpot and Mark Hedo, but like, you know, specific quantified buyer personas, including jobs to be done information, like all that kind of stuff. Next up, you know, identifying your value metric. Next up, making sure your packaging is right, next up the actual price point. So all of a sudden, we start to break down pricing into these different pieces, these different buckets. And every company we work with is you know, a little bit different on where they are on the threshold. Like some people, they have really good research, they understand research, all these different things. And they're bringing us in for extra bandwidth, extra expertise, etc. Other people, they have no idea what they're doing, right. They just never, you know, they've never tackled. And so with us, it becomes, okay, cool. Like, we're going to break this problem down. And we're going to make sure that you can actually implement these things. Because if you don't implement the things that we're talking about, like this isn't really that useful, right. And so that's kind of how that evolved into, you know, understanding. And then we looked at, okay, we were doing these one time type, you know, image projects, right with our software, and people would come back for multiple projects. But we ran into like a problem where, oh, cool, here's all this data, thanks. And people would want help implementing it. And we weren't really incentivized to help them implement because we were sitting there and we were like, well, we're technically you're not getting paid to help you. Like, we wouldn't say that. But like, that's, you know, basically what, what was happening. But also, if you don't implement this, like, and we didn't have any control, either, so it wasn't like, oh, cool, like, we can help you or Oh, cool. Like, you know, let's get on the phone with john and like, talk through XYZ Instead, it was, you know, emails here and there. And, and those emails weren't the highest priority, because we had other like, paying customers that we're trying to deal with at that point. So that's kind of pushed us to move to the subscription model where it's like, okay, people are paying on the subscription basis, we've structured things and how they work. And then all of a sudden, we're looking at it, we're saying, Okay, interesting. Like, now we have a relationship baked into how people are paying us. And we're sitting there as well, not necessarily an equal number of a team, but like a member of the team, and can either be very reactive, if that's the type of customer we're working with. We're extremely proactive, if that's the type of customer we're with, so we can get the job that's supposed to be done done with that company.

Andrew MichaelVery interesting. You mentioned as well, and you touched on a topic, I think, that a lot of companies tend to get wrong as well. And when it comes to the value metric, and there's a line, I think, on your website now, at the moment, which actually love to an earlier earlier was, let's be honest, you guessed it. And I think this is typically the approach that most startups take when getting their pricing set up. It's normally just sort of taking a look at a few other companies out there comparable, seeing what they charge and just slapping a number on and seeing how it goes. Maybe you want to talk us through the concept of value metric and why it's so crucial when it comes to pricing your product.

Patrick CampbellYeah, hundred percent. This is this is exactly when I said hey, I have a better answer for the mistake people make with churn and pricing. This is this is the better answer, which is value metrics. So a value metric is what you charge for, it's your per user per hundred visits per thousand widgets, what's it's whatever your product is. And the reason the value metric is so important for what I would argue, basically, acquisition, monetization and retention is because even if you get the price point kind of wrong, like you're under charging, or overcharging a bit like depending on whether it is your value metric will save like your entire pricing strategy. And the reason for that is, when you're using a value metric, you're basically charging along that value that you're providing that user and if you've identified that somewhat correctly, what ends up happening is as a user wants more, or is using more aka getting more value out of the product, they end up paying you more, and then if they start using less than they end up paying you less, but they're not turning right. And that's where it becomes super, super powerful. Because this also provides you like, you know, potentially thousands of entry points, because everyone is paying kind of where they need on the entry point of your product. Now, it's not always the case, if you kind of batch value metrics, meaning, hey, this is the tier for 100 to 500 visits, this is the tier four or 501 to 1000 visits, etc. But it is something that's super, super powerful. And what we found is that those companies that are utilizing value metric based pricing versus feature based pricing, they're typically growing at about double the rate. And that's because they're just churn rates are about half of those who are feature based pricing. And also their expansion revenue is I think, two to two and a half x, that of the feature based pricing folks as well. And so I think that's probably like if there's one silver bullet when it comes to pricing, or at least something that's super, super helpful for both pricing insurance, it really is that value metric is getting to that.

Andrew MichaelSo talk us a little bit through that. And then how company would actually go out and figure out what that value metric should be, what would the typical process look like?

Patrick CampbellYeah, and so I think that the process is, first you have to think of what's your perfect value metric. And what I mean, my perfect value metric is like if you could perfectly measure it, make sure that the customer understands and agrees to it, etc. Like, that's your perfect value metric. And so for most of us, that's especially in b2b, it's making more making your customer more money, more revenue, or reducing their costs or reducing their time. In you know, the world of b2c maybe it's like, making them fitter. If you're a fitness product, or it's, you know, helping them lose weight, if your fitness product or it's, you know, giving them something to do with their time or something right. Now, all of those can't be perfectly measured, right? There are some products that that's, that's where you stop. So we have this product called retain, like I mentioned, we charge based on how much money we recover. So we have tiers and based on how much we recover, there's, you know, it fits into those tiers. And that's like a very pure value metric. Because all of a sudden, people are like, Oh, cool. Like, I only get charged if you make me more money. And we're like, yep, and they go, Oh, okay, that makes sense, right. Now, for others, like, let's just talk about like HubSpot, for example, a marketing automation product, like they can't really charge based on money or revenue, because it's like one of those things where it's like, well, that blog post definitely made us money. But I don't know, like, was HubSpot 30% responsible for it? Because I wrote the blog post, but they hosted it, or are they 70%, because they have all this marketing automation, like, it's really hard to determine like, Who Who is the main winner of that particular revenue, right. And so what you do is you then take a step back and look at what are the proxies for the value metric. So in HubSpot case, they can't charge based on revenue quite yet, maybe one day they will. But now what they can do is they can say, well, contacts or visits or users or a bunch of those different things can be proxies for that revenue. And what you can do then is once you've kind of determined those viable proxies, and you really want to kind of push yourself a little bit, because some people, you'll say, oh, that will, that will never work, let's like, let's let's get some data on it. But let's say you found those five or six proxies, then I would go out to a user base or a target user base, or market panelists, if you these are people you can pay to get research from, if you don't have any users right now. And I would basically use some of the methodologies that we've developed, you know, asking relative preference questions, meaning, you know, hey, when it comes to, you know, hub spots, pricing, what is the most preferred, what is the least preferred, and then show them the different options pricing based on context pricing based on x pricing based on wide cetera. And then I would collect some other data around, you know, the willingness to pay based on value metric, and even what the distribution of that value metric is currently amongst my base. So how many people have 1000 contacts, how many people have 5000, contacts, etc. When I have all that data, normally, for most companies, the the value metric is kind of staring you in the face. You know, it's not something that's too complicated. But that allows you to kind of implement that value metric and get kind of all the benefits of the value metric down down the line.

Andrew MichaelInteresting. And it's an approach as well, that we took some early adoption differently, it has a lot of value in the understanding really is aligning the value that you give to your customers with the amount that you pay, we touched as well, that it is really, really powerful as well for expansion, revenue and contraction at the same time. So I think a really good example of value based pricing actually is slack. And I know in one of your pricing page tear downs, you actually took a look at slack. Maybe you want to just talk us through what the beauty is in specs, pricing?

Patrick CampbellYeah, yeah, that's a great, great question. I think slack. slack is nailed it. I don't know if they really consciously like, you know, nailed it. Like, I think they might have looked into it. But I want to give them all credit, mainly because of that value metric for you know, the number of messages that you can search through. So basically, slack was like, I don't want to go after like $10 per month type customers, I want to keep them free essentially, until they're going to be worth hundreds of dollars per month in terms of customers. And I think that one that's really, really something novel that they've done. I don't know if it's that novel, but it's just really something that was really, really good. Because once you reach like 15, team members inside Slack, and all of us, you're trying to search back in the history of something that was said or find a document that was shared you you need to sign up for a paid plan. And I think that was really, really good for them. And then if you notice their tears, they also kind of upgrade, like once you upgrade, all of a sudden, you'll get into like much, much higher tier, but the only reason that you'll upgrade is probably because of you know, compliance things and things like that. So I think they're they're really really good example of persona pricing fit. I think another example would be like HubSpot, which I mentioned before, I think they did really, really well with the contact element. Particularly they were kind of, I don't know if they were the first to do that in the marketing automation space, but they definitely brought it forward. And I think that what they did really, really well as well as because they were dealing with such fragmented types of users. They took and move forward on basically implementing a way that the main value metric was context. But then you'll notice they have like secondary value metrics or secondary things. were like, for example, in the lowest tier, you can only get like two or three users. And then the next two years, you get unlimited users. But that just kind of protects from what I call backsliding, downgrades, where people are basically like, well, I don't have as many contacts, I'm just going to stay in this tier. But all I need more users. So I getting I can afford more users. So I might as well jump up to this next year. So yeah, I think those you know, those are those are really, really, really, you know, really important pieces of a pricing strategy, especially when you're using value metric.

Andrew MichaelYeah, absolutely. And as an end user as well, I think you really, really appreciate it on the both sides. So as you grow, you do see more value and you're willing to pay, but then I think as well select really nailed it again, was with a fair pricing model as well. So use it became directive that actually give you credits towards your account because you weren't extracting that value. So I mentioned it as well, obviously, you sitting on a lot of data and you touched as well on selects, models not really wanting to go after $10 customers and trying to keep it for free as much possible. Looking at the subscription data that you're sitting on at the moment, do you see software, slowly declining? And eventually do you think like software itself will have a value to people? I know, there's obviously been certain blog posts that have been circulating knowledge as well, that is SAS is software moving and trending towards zero and freemium?

Patrick CampbellYeah, I think that I would say yes, and we have a lot of data to support this. And the reason is, is because this is pretty intuitive. And it kind of happens in most markets. Like if you think about, like, software 15 years ago, right, it was a lot harder to build. So the prices that you could demand, you know, were higher, because there was just like this weird supply demand like situation and the basically the demand for it kept going up. But the supply kind of stayed down, because there just wasn't as much, you know, competition out there. And then today is everyone listening probably knows, like, We're living in a world where it's like, hey, if you and I wanted to start a software company, we could probably spin up a server and have a website up by the end of this call. And I know that sounds ridiculous, but that's the world we live in, it probably wouldn't be a great product, it would be a great, great, you know, landing page, but I don't know the Yeah, but the barrier wouldn't, you know, isn't there as much. And so because of that you are living in a world where, you know, the average number of competitors that you would have your first year of business, like five or six years ago was like two or three, average number of competitors today is in the double digits. So if we started a product today, it's most likely that it would have about 10 to 12 competitors just right out of the gate. And because of this, essentially, like consumers are getting, you know, the best part of this, because there's so much competition, and all of a sudden, like the willingness to pay is kind of dropping, because, you know, used to be like, Oh my god, you can give me so much productivity from this pen and paper. Amazing. But now it's like, well, I get all this productivity from all this other stuff. So like software isn't as magical. And I think because of that competition, kak is increased substantially tax up about 70%, compared to five years ago, and this is blended, but it's consistent with content paid all these different, you know, channels that you have. And because of that, I think freemium is really where a lot of companies are going to end up going, just out of necessity. And it's, it's not necessarily going to be a free element of their product, meaning like, you know, 100 free plan, or a slack free plan, which, you know, that exists, obviously, but there's, there's going to be an element of like, oh, maybe we start the side app, that's like a marketing reports, product, right? That, you know, you can connect all the important things, and all of a sudden, we're getting a bunch of marketers that we can then sell hot George, right. That's that's kind of what we're living in is there might be these tangential products that attract the same type of buyer. But then you know, that that list is used to sell the main product to. And we've noticed some actually really big benefits of freemium as well, especially in the context. So customers who convert from free, typically their acquisition costs are I think it's like 30%, lower than customers who convert from like a cold start. retention is typically about 15% higher for those customers to convert from free. And NPS is actually double for those customers convert from free. And the main reason for this is that those customers are basically converting on their own terms. They're the ones who are basically like, you know, they they didn't get forced to upgrade, or they didn't get forced to convert, they were basically, you know, held and nurtured until all of a sudden, they were ready to convert, which I think is a big benefit of free overall. But I will say like, given all those benefits, you shouldn't rush into free. Free is very much like a new one style. You either need someone who is like a true growth hacker, someone who's really, really good at free acquisition, if you're going to go free from from out of the gate, or I would recommend waiting till you're like three, four years into your business where you understand how to convert your customers, and then just need to open up the top of the funnel. I think eventually I'll say like, this might be 10 years from now say like, Hey, you have to start with free. But at least for now, I don't think, you know, starting with free unless you have some of those exceptions makes a ton of sense.

Andrew MichaelAnd as you mentioned, I mean use it speaks a lot to it as well in terms of the numbers and retention and churn. And really just getting that customer and onboarding their customer and actually ready for your product as well. A lot of the times as well, wouldn't it free like it is the low barrier to entry allows you to acquire customers a lot faster. But they're not sort of forcing them after 15 days to start paying when they perhaps haven't really received the value that you receiving that they should be receiving from your product yet, and end up turning like a month or two later.

Patrick CampbellYeah, totally. I think free trials, free trials are really tough. I think free trials are more industry dependent. But yeah, because because in most cases like a free trial, you might as well just make it free. And the reason for that is like if you think about most products, it's like just give them up to a certain amount for free. And that acts basically as a free trial. Like give them you know, hundred email opens, give them 1000 visits. And then if they're below that, will they you know, you're not forcing them to upgrade to something. And if they're above that, they're probably more than happy to convert.

Andrew MichaelYeah, and, and I think as well, the free trials will typically goes back to that like aligning with personas as well. And a lot of the times as well, what you tend to see is like these 15 day trials or 30 day trials, typically on long enough for bigger customers sort of the enterprise that you wanting to go after and then they're not ideally suited as well to like the very small business space MBC potentially would be better off starting off free and then growing into your product as well. I totally agree with that. touching on the topic of churn as well. And you've done one of probably one of the biggest reports when it comes to churn itself. And I know a couple of others have recommended this as a resource on this podcast previous as well. And maybe you want to talk us through some of the findings. So I just you can find this as well and profit wills site. But like some of the things that you came up from this study was I know one of the first ones was larger companies tend to see 15 to 30%, lower churn or companies with low ARPU have to be three times more churn itself. How did this study for yourself? What would you say was one of the most surprising metrics that came out? And like sort of had a wow moment for you?

Patrick CampbellYeah, that's a really good question. Because I think some of the things that we found are, like, maybe pretty important as Yeah, like, they were probably like, oh, oh, yeah, that makes sense. You know, like you don't you don't necessarily realize it, right. It's kind of like inventing Uber, all of us, we look at it, and we're like, oh, press a button, get a car. Like, that seems super obvious. But once it exists, you're like, Oh, my God. So I think like the ARPU finding, I thought was pretty interesting, right, but not necessarily because it doesn't seem intuitive, because of the degree right. And so I think that was interesting, you know, higher ARPU, companies have lower churn. And that just typically happens because, you know, there's a longer sale cycle. So people need to determine, you know, if they're a good fit, they take themselves out on the in the sales cycle if they're not a good fit. And then there's like high customer success and things like that. I think some of the other things, one of them, which is why we started a product, our retain product started here was just how high credit card failures accounted for churn. So just to give you a perspective, like for every 10 customers, that churn, two to four of them are because of credit card failures. So it's basically for a credit card based company. It's the largest, like single bucket of churn. And so that was really surprising, not because cuz we didn't think it was a problem, but because like, the gravity of the problem was super interesting. I think some of the other ones that were kind of maybe not shocking, but like were super kind of intuitive. Things like the, you know, the annual is the more annuals you have, the lower your churn, which I think was really cool. And it was like almost like a perfect correlation, which was really interesting. And then one of the other ones I thought was really, really kind of fascinating was that funded companies, basically, those who have raised funding typically have much higher churn than those companies that are funded. And this this was kind of funny, because you wouldn't necessarily expect that, especially at different stages, different art news, etc. But that was that was something that was really, really kind of fascinating.

Andrew MichaelWhy do you think that is the knowledge that you've had a chance to think about it?

Patrick CampbellYeah, I think it's just because there's a moral hazard, you know, with funding. So like, basically, you're just like, oh, cool, like, I'm just going to go spend all this money, and then you end up spending it on not so great marketing channels, and you spend it on, they're just not so great, like tactics. And you're so focused on top of the funnel growth, because that's what's going to get you to your next round. But basically, what ends up happening is you get a lot of bad customers, or you get just the wrong customers. And I think when you're, you know, bootstrapped, you have to be a little bit more thoughtful about that. Or at least you you don't survive, if you're, if you like, don't figure out for right. So yeah, I think that's something that's interesting. And I think it's, I mean, this is where you, you know, they don't happen all the time. But there's plenty of stories of like companies that, oh, that company shutting down, like, what they raised 25 million, and it didn't seem like they were suffering, but it's like, oh, their turn was terrible, right. Yeah. So it's something that's super tough.

Andrew MichaelYeah, I think it's really interesting issue, because I tried as well recently approached one or two VCs to come on the show, early stage and their responses was shocked me a little bit in the sense that what they said was, it's more of an operational metric. And it's not something they typically look at, in their businesses. And from our previous perspective, I thought it was like one of the main metrics that VCs would be tend to be looking at, but maybe at the earlier stage as well. It's less of a focus. And it's more when it comes to sort of like the series A or B, where it really starts matter, for most VCs and then again, for would really start to compromise venture

Andrew Michaelbacked companies as well. Yeah, I think that's really cool. So you mentioned as well then retain itself, like, you have a product now that helps. And typically, like 20 to 40% of overall churn comes from delinquent churn, and delinquent churn as well. Like a lot of the time it's it's involuntary, or most of the time, it's involuntary. How do you distinguish as well, then between active churn and then delinquents and violence feature?

Patrick CampbellYeah, basically, I mean, I think you kind of hit it there, you know, suddenly, it's involuntary turn is essentially when you know, someone has essentially a credit card or a payment failure, right. Now, some involuntary churn is technically voluntary term, because there are some people who typically like one to two out of 10, who will essentially use the credit card failure as an excuse as to why they are going to to no longer use the product. But for most of those folks, eight out of 10 of them, it's just because, you know, have forgotten XYZ. Now, on the voluntary trend side, it's basically anyone who is actively choosing to cancel your product. And that, in turn, it can be for a whole host of reasons it could be because of, you know, they get enough value out of it, they didn't have enough time to see what's going on with it, they haven't, you know, set something up, they didn't like the support or sales experience, you know, they're going out of business, there's, there's just so many different pieces of why a customer would fail. And there's just so many things you can do in order to, you know, kind of Lower, lower that potential churn, I think one of the things that a lot of people miss out on and this is one of the first features that we came out with, you know, is is basically upgrade to annual. So having people get on an annual plan, which typically has, depending on the ARPU, like, you know, could be up to half lower churn, then, you know, people being on a monthly plan, essentially. So, yeah, I think it's there's a lot of little tactical things you can do to kind of solve that that retention, but I think it's one of those things where like, understanding the difference is super important. And then like we kind of alluded to before, then breaking down that particular you know, that that big problem into a bunch of different parts and kind of attacking it in that particular manner.

Andrew MichaelYou might have renounced the my next question then with this, but let's imagine a scenario now you you will continue company, and you've seen that the retention numbers are pretty low, like churn is quite terrible. It's your first month there, what are some of the first things you do when you get to this company top 10 things around?

Patrick CampbellYeah, so I think

like the first two weeks, as long as I have this autonomy, I would just get a basic proper flow for delinquent. Sean. I mean, I probably would implement retain shameless plug. But I would have, you know, if for some reason, I'm not going to use that I would I would get, I would treat it like a marketing channel, and just get really, really basic flows in that messaging, make sure my my settings inside my billing and payment processor surprises, that type of thing. And that typically doesn't take a long time, I would then put in some marketing clothes, essentially, for upgrading people to annual payments. So after they've been with the product for three months, or based on some sort of usage, that's when I would reach out to them to handle that. And then there's a couple of other mechanical things that I think it would do. But I think the most important thing I would make sure I do in those first two weeks, is put together a basic survey on, you know, what was the biggest reason that you cancelled product x and what was like the smallest or little reason that why you canceled product x, I would send that to all of my cancel customers, and basically start to get some data, and then I would leave like an open ended box, like, Hey, tell me more. And then based on that, what I would do is basically start to understand, you know, what that would look like, and start to kind of dive deeper into, like, there's probably going to be something that's rather obvious, especially when you start to segment that data and qualitatively get on the phone folks. Like, there's probably something where you're going to identify problems in the onboarding. And so like, then you're going to have to start redoing onboarding. And then there's probably going to be like a, maybe like a, you know, a main feature that is covered by a lot of things like, Hey, we don't have this main thing. But then there's probably like a long tail list of like, oh, here's a bunch of features that we don't have that people want. And so that's then my work with the product team, I probably am on the product team from handling churn. And then I would work to like, see how we can fit those things into the roadmap, especially terms like a really, really big problem, as you said, and and then it's just like a cycle. Like it's just like understanding because then you're going to discover Oh, like, you know, we're targeting the wrong customer. So now I got to talk to the growth team. And I have to figure out like, hey, customers who, you know, use the Salesforce integration, their retention is twice as much as the you don't use the Salesforce integration. Let's get more Salesforce integration people or let's go to the base who has a Salesforce integration and get them to hook up Salesforce, right? So there's just all these different things. And I think you have to be almost like a detective. And start, like thinking about figuring stuff out and using both your instincts and your data to kind of really start to break down all of those different paper cuts of what's going on, if that makes sense.

Andrew MichaelYeah, I think that like what you're alluding to, is almost like a never ending process as well. And it's something that involves different aspects of the company and different stages. And with that, I think maybe this is a good draw and a good end to the show. Patrick, it's been a pleasure having you today. And thank you very much for joining us.

Patrick CampbellYeah, absolutely, man, and there's anything I can do to be helpful, just let me know.

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About

The show

My name is Andrew Michael and I started CHURN.FM, as I was tired of hearing stories about some magical silver bullet that solved churn for company X.

In this podcast, you will hear from founders and subscription economy pros working in product, marketing, customer success, support, and operations roles across different stages of company growth, who are taking a systematic approach to increase retention and engagement within their organizations.